Financial development and economic growth in BRICS revisited: An application of cross‐sectional augmented ARDL.

This study reassesses the relationship between financial development and economic growth using the datasets of BRICS countries. The MG‐ARDL and CD‐ARDL (MG) models are considered to account for both heterogeneity and cross‐sectional dependency. The overall results reveal a negative and insignificant effect of financial development on GDP from a MG‐ARDL linear model and a negative and significant relationship between financial development and economic growth from the linear CD‐ARDL (MG). However, when the square term of credit to the private sector is introduced, it is found that a positive and highly significant relationship exists between financial development and economic growth up to a point beyond which it turns negative and significant for both the MG‐ARDL and CD‐ARDL (MG) models. Based on the results, it is concluded that the excessive supply of private credit is harmful to the economy, thereby slowing its growth. Policy suggestions have also been discussed. [ABSTRACT FROM AUTHOR]